Research
Research
Efficiency in the Housing Market with Search Frictions (with Victor Ortego-Marti)
Macroeconomic Dynamics, accepted.
[Online Appendix]
The Real Effects of Financial Disruptions in a Monetary Economy (with Athanasios Geromichalos, Lucas Herrenbrueck, Ioannis Kospentaris, and Sukjoon Lee)
Journal of Monetary Economics, forthcoming.
[Paper] [Web Appendix]
Home Construction Financing and Search Frictions in the Housing Market (with Victor Ortego-Marti)
Review of Economic Dynamics, Vol. 55, 2025, 101253
[Paper] [Slides]
On the Slope of the Beveridge Curve in the Housing Market (with Victor Ortego-Marti)
Economics Bulletin, 44.3 (2024): 948-960.
Coordination Frictions and Economic Growth
Macroeconomic Dynamics, Volume 27 , Issue 6 , September 2023 , pp. 1528 - 1548
[Paper]
Intermediation in Over-the-Counter Markets with Price Transparency (with Ioannis Kospentaris)
Journal of Economic Theory, Vol 198, 2021, 105364
[Paper]
Progressive Taxation as an Automatic Stabilizer under Nominal Wage Rigidity and Preference Shocks (with Jang-Ting Guo)
International Journal of Economic Theory, Vol. 18, Issue 3, September 2022, 232-246.
[Paper]
Search and Credit Frictions in the Housing Market (with Victor Ortego-Marti)
European Economic Review, Vol. 134, 2021, 103699
[Paper]
Simultaneous Innovation and the Cyclicality of R&D
Review of Economic Dynamics, Vol. 36, 2020, 122-133
[Paper]
A Note on Progressive Taxation, Nominal Wage Rigidity, and Business Cycle Destabilization (with Jang-Ting Guo)
Macroeconomic Dynamics, Vol. 25, Issue 4, June 2021, 1112-1125
[Paper]
The Cyclical Behavior of the Beveridge Curve in the Housing Market (with Victor Ortego-Marti)
Journal of Economic Theory, Vol. 181, 2019, 361-381
[Paper]
Abstract: Using two and a half decades of microdata from the Survey of Construction, we document a robust presale price premium: houses sold before construction commences sell at an average of 2.8% more, with premiums reaching 15% for homes sold five or more months before construction starts. Houses sold post completion of construction also carry a modest 1.4% premium, creating a distinctive U-shaped pricing pattern. To explain this pricing pattern, we develop a search-theoretic model of the housing market in which developers face credit market frictions. We show that these credit frictions give rise to a novel channel that can rationalize the existence of both the presale and post completion premia. A calibration of our economy to the US housing market implies the credit frictions channel can explain about a third of the presale premium.
How does asset market liquidity affect the real economy? A quantitative assessment of the transmission channels (with Athanasios Geromichalos, Lucas Herrenbrueck, Ioannis Kospentaris, and Sukjoon Lee)
Abstract: The corporate bond market provides a vital avenue for firms to cover their borrowing needs. Moreover, the ease with which corporate bonds can be (re)traded in secondary markets affects their liquidity and, effectively, the rate at which corporations can borrow. However, the literature has also pointed out that a well-functioning secondary market can depress money demand and hurt economic activity. We perform a careful quantitative analysis of the channels through which secondary market liquidity affects the real economy in the context of a New Monetarist model. We find that a deterioration in secondary market liquidity has a negative but modest impact on output and unemployment. This small net effect, however, conceals much larger underlying forces that operate in opposite directions and largely offset each other. We also show that the results of our decomposition exercise depend on the inflation rate. Our findings highlight the importance of studying investor portfolios together with asset prices to fully capture the interaction between financial markets and the real economy.
Endogenous Realtor Intermediation and Housing Market Liquidity (with Victor Ortego-Marti and Ioannis Kospentaris)
Abstract: This paper develops a housing search model with endogenous realtor participation and uses it to study the relationship between prices, commission fees, and market liquidity. We show that different price and fee setting mechanisms have first-order implications for prices and liquidity, but not for commission fees. When prices and fees are posted and search is directed, the equilibrium is constrained efficient, whereas under a bargaining regime with random search it is not, even when the Hosios-Mortensen- Pissarides condition holds. A calibrated version of the model shows that commission fees are quantitatively robust to alternative pricing mechanisms, although they are quite sensitive to demand and supply shocks, as well as liquidity shocks. When prices are bargained the equilibrium features 2.5% higher prices, 17% lower sales, and 23% fewer buyers entering the market than the equilibrium under price posting. Our results can thus rationalize why the expected reductions in commission fees and prices did not take place following the recent landmark settlement between the National Association of Realtors and homeowners.
The Effects of Secondary Corporate Loan Trade on Credit Issuance and Job Creation (with Ioannis Kospentaris and Lucie Lebeau), R&R at Journal of Monetary Economics
Abstract: An increasing share of corporate loans, a critical source of firm credit, are sold off banks’ balance sheets and actively traded in a secondary over-the-counter market. We develop a microfounded equilibrium search-theoretic model with labor, credit, and financial markets to explore how this secondary loan market affects the real economy, highlighting a trade-off: while the market reduces the steady-state level of unemployment by 0.6pp, it amplifies its response to a 1% productivity drop from 3.6% to 4.3%. Secondary market frictions matter significantly: eliminating them would not only reduce unemployment by 1.2pp, but also dampen its volatility down to 2.7%.
Unemployment and Labor Productivity Co-movement: The Role of Firm Exit (with Mario Silva) , R&R at Journal of Economic Dynamics and Control
Abstract: The Diamond-Mortensen-Pissarides model implies a nearly perfect correlation between labor productivity and unemployment/vacancies, yet the relationship in the data is mild. We show that incorporating sunk entry costs and vacancy creation in an otherwise standard setup can reconcile the discrepancy. Sunk costs cause vacancies to be a positively valued, predetermined variable. If the destruction shock is infrequent, then most vacancies were created in the past, and hence the number of vacancies in the market correlate more closely with past than current labor productivity. Provided the destruction shock is calibrated to match either micro-level evidence on product destruction and firm exit rates or commonly used values in the growth literature, the model reproduces the empirically observed mild correlation between productivity and unemployment without breaking the strong negative co-movement between unemployment and vacancies.
Older working papers
Government Policy in the Context of Business Cycles and Simultaneous Innovation
Abstract: This paper examines the business cycle (de)stabilization effects of a government subsidy/tax to R&D investment in a stochastic expanding-variety endogenous growth model. The economy is a version of that in Gabrovski (2018) and features both simultaneous innovation and endogenous innovation quality. Through the means of a numerical exercise, we find that when there is a tax on R&D investment, or a relatively small subsidy, the steady state exhibits saddle-path stability. When there is a sufficiently high subsidy, the steady state becomes a totally unstable source. In the region where the steady state is a saddle-path, promoting innovation either through a decrease in the tax rate or an increase in the subsidy generally dampens the size of business cycle fluctuations. This effect, however, is quantitatively small.
The Patent System as a Tool for Eroding Market Power
Abstract: The conventional viewpoint on the patent system is that it allocates market power in order to stimulate disclosure of information and create incentives for firms to innovate. This paper develops a dynamic equilibrium search model to show that, in sharp contrast to this traditional view, the patent system can erode, rather than allocate market power. This result can be obtained, regardless of whether or not it provides prior user rights, by incentivizing firms to patent and, at the same time, delivering a sufficiently weak patent protection. The patent system delivers incentives by punishing firms that choose not to patent (when there are no prior user rights) and by providing a strategic advantage to firms that patent (when there are prior user rights). I find that it may be optimal to set weak patent protection so as to induce only some firms to patent while others keep identical innovations secret. This result suggests that the patent system's ability to erode market power may be central to its capability to increase welfare.
Housing Market Dynamics with Search Frictions and Endogenous Separations (with Victor Ortego-Marti and Nitish Kumar)
Simultaneous Innovation, Growth, and Unemployment
Housing Collateral and Firm Entry with Search Frictions (with Victor Ortego-Marti)